The Economy Is Chronically Short of Money with Ellen Brown

Jason Hartman hosts Ellen Brown to discuss Universal Basic Income. Brown is the author of many books including The Public Bank Solution. The two discuss the end game of money spending, what happens to the money when debt is paid, and how China increases its own money supply. While China has increased the money supply by 1800% over the past couple of decades they have avoided hyperinflation, they explain how.

Jason Hartman 0:01
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Announcer 0:12
Welcome to the American monetary associations podcast where we explore how monetary policy impacts the real lives of real people and the action steps necessary to preserve wealth and enhance one’s lifestyle.

Jason Hartman 0:29
It’s my pleasure to welcome a returning guests back to the show, and that is none other than Ellen Brown. She’s the author of 13 books. I first found out about her great work when I discovered the book web of debt. And more recently, she’s author of public bank solution and banking on the people democratizing money in the digital age. And she recently published an article about UBI universal basic income. As you know, we had presidential candidate Andrew Yang on the show talking about that Interestingly, I’ll just kind of start with this one, and you’ll probably disagree with me. But, you know, philosophically, I don’t want to agree with this, it feels like another expansion of the welfare state a handout, blah, blah, blah. And you know, you’ve heard that trope more than enough times, I’m sure. But interestingly, in the pandemic, situation we find ourselves in, there really isn’t an efficient mechanism, or there’s really no mechanism to get money to people. So what you have happen, and I’m sure you’re going to elaborate on this quite a bit, is you have all of these corrupt big banks that are now already being sued, thankfully, you know, getting their hand in the till and the money’s not going where it was intended to go. It’s a mess. Where do you want to go with that?

Ellen Brown 1:51
Yeah, well, I agreed. And the other problem is that you can think about these long range things that people need, like We need Medicare for all and things such I mean, we’ve we’ve seen how bad our medical system has been in responding to this crisis. But all that stuff is sort of spotty, you’re gonna get some money here some money there, and they’re going to still be people left out. So the reason I like the universal basic income, at least to talk about it on a theoretical level is that it goes to everybody equally, and you don’t, it’s very easy to distribute in the sense of, you don’t have to go and show that you’re worthy of you know, that you’re under a certain income level or whatever it takes. You don’t, you don’t have to have all kinds of bureaucracy, deciding who gets what, it just goes to everyone equally. Now, a lot there is 25% of the population is unbanked or underbanked. So they might still have trouble accessing it if it just goes right into your bank account. But we’ve been pushing for postal banking, you could just have it go right to your post office and anybody can open An account at the post office, which is what we used to have from 1911 to 19. See what’s

Jason Hartman 3:04
going on, what is the postal account? What do you mean an account to the post office? What does that mean?

Ellen Brown 3:10
Yeah, well, we don’t have them right now. But it used to be that we had postal banks. So it was just another window. In the post office, we’ve already got the infrastructure, you’ve got a post office in every little town, even little towns where they have banks, you know, rural areas. And it used to be that you could just went to one window and mailed your packages and then you went to the other window and deposited your check or checks or pulled out some money. You know, it’s just basic banking, not not like elaborate mortgage loans or anything like that. So they could do that on an emergency basis. Again, just say you can go to the post office and get your check, just open an account which you know, you could do it on your cell phone or whatever, you know, you can make it quite easy. And another option is that Something called Treasury direct where anybody who wants to can open an account and that’s, you know, it’s digital online. And it’s where, where you can go to buy treasury bonds right now. So anyway, it’s possible to get do some very fast, efficient way to get this money into people’s pockets. But what I was really writing about wanted to write about is that, it seems to me that the obvious way to fund this is just issue the money the way, you know, basically, quantitative easing, theoretically, quantitative easing is reversible. But we’ve just seen that you can’t reverse it. It’s just like the federal debt, theoretically, we’re gonna pay off federal debt, but everybody knows we’re not going to pay off a $24 trillion federal debt. It just sits there. And the thing that grows is the interest. I mean, you could just Other than that, it just keeps rolling over and over and over. And you could just fund it through the Federal Reserve and roll the whole thing up. In other words, basically, it’s just issued MONEY MONEY issued by the government. So that’s what I think we should also do with a universal basic income. And any argument that we don’t have the money has just been killed by the fact that the Federal Reserve is just promised $4 trillion to basically corporate America to bail out everything and say all sorts of big and little businesses and hedge funds and the riskiest dodgiest of things. It used to be that. I mean, technically, when the federal reserve funds something like when they did quantitative easing, they can only use things that are backed by the government. So it was supposed to be very safe things backed by the government. So they were supposed to take as collateral or in other words, what they did was buy these federal bonds federal securities or mortgage backed securities. From Fannie Mae and Freddie Mac, who, which are government agencies, so are government backed agencies. Anyway, so, now they’ve expanded that and the way they expanded it was that the Treasury has set up these special purpose vehicles which the Treasury that’s us, we the taxpayers are funding this. We are putting up 450 $4 billion as capital for this. What’s basically a shadow bank I could go into that but you know, it’s not like a Chartered Bank, but it has the functions of a bank where

Jason Hartman 6:36
when you say it, what is it? Okay,

Ellen Brown 6:39
this special purpose vehicles is the

Ellen Brown 6:43
right yes, you know, pseudo bank. So what these spvs they’re called what they do so you’ve got him for like commercial paper and municipal paper in all kinds of different corporate debt and what And it’s run by minuchin. Steve minuchin, the Treasury Secretary so obviously another bureaucrat, another appointee, not somebody we elected. And it’s who decides what they buy is BlackRock, which is the world’s largest asset manager. BlackRock is bigger than the economies of many countries. I mean, it’s this huge entity that does not have the best reputation. But anyway, so you’ve got all these private entities in there are raking out. It’s so this $454 billion, billion dollars that we’re putting up for this, these spvs will then be used to leverage $4 trillion in credit or debt or whatever that so they can buy up all these bonds and various dodgy sorts of assets that the Federal Reserve is not allowed to buy up itself. But it’s

Jason Hartman 8:01
going to do it by hook or by crook, I guess I’ll say. And what’s so terrible and scary about this other than the massive amount of corruption and the greedy hands that will be in the cookie jar. And all of that stuff is, even if it was a clean program, the fact that they’re just doing it, the the powers that be, you know, I would say the government normally, but it’s not just the government, right? It’s the it’s the Fed and the government and the spvs. They’re all picking the winners and losers. What the heck is their right to pick the winners and losers? Shouldn’t the marketplace sort that stuff out? No, they don’t. You know, you get political cronyism, and it’s just, it’s just absolutely terrible,

Ellen Brown 8:46
right? We don’t actually have capitalism anymore. We have crony capitalism, or corporatocracy, or whatever. Yeah. So anyway, they’re gonna tap into this $4 trillion of credit that the Fed has available, and without blinking, and I mean, the Congress voted unanimously to pass this bill in the space of a few days, basically, because they didn’t want to have to come back into, you know, meet in person. So they all just passed it by the internet. I mean, even the postman have to work, you would think Congress could come in for a couple of days and argue about this. So they passed that, without even worrying about where we’re going to get $4 trillion. So I’m thinking come up with $4 trillion, for all these entities. Oh, and another thing is they make these loans. And that’s what the purpose of our capital, if they’re making loans like to buy asset backed securities or which are, say, auto loans, like half of those are going to default. And when they do, it’s, we are, it’s our capital, that’s going to fill in the hole there. So, so there’s plenty of money out there that they can get from the Federal Reserve, and they could just as well get it for universal basic income for the people. But then what everybody says

Jason Hartman 10:03
in a side note, you know, Larry Fink of course, is chairman CEO of BlackRock, or at least he was, I don’t know. And revenue 2018 was 15, almost $15 billion rounding with an operating income of 5 billion. Unbelievable.

Ellen Brown 10:20
I just did you know, also as an aside, you know, BlackRock on December 31 added, increased their investment in moderner, the lead vaccine producer on December 31, the first day we ever even heard about a problem in Wu Han. And then on the day that the market crashed in March, after the market went way way down. BlackRock alone made $68 million on moderner because you know, that stock shot up while everything else collapse So anyway, these it’s an interested party, so BlackRock gets to choose Which bond funds they buy? And obviously, they’ve got their fingers in these bond funds. So anyway, yeah, totally corrupt. Yeah, the

Jason Hartman 11:08
whole system is just, it’s amazing. I want I want to let’s just jump away from this direct topic for a moment. Okay. What is the endgame of the money spending? conventional wisdom, or at least modern conventional wisdom, would say that all of this spending is in inflationary pressure. You can’t just create money out of thin air forever. You can’t just run up the debt forever. You can’t just run deficits forever. The chickens have to come home to roost. You know, we got to pay the piper, whatever expression you want to use, or can we?

Ellen Brown 11:44
Yeah, that’s what I was reading this article about is that Yes, we can. And I mean that this is in terms of a universal basic income. Let’s assume that we that it takes another $3 trillion to give a 1200 dollar month. universal basic income to the people. The problem is people think of this as like a picture of bucket of coins and you just keep pouring more buck more coins and eventually it’s gonna overflow or it’s gonna deflate the value of the coins. But that’s not what our money system is. It’s not a fixed amount of money. It’s a credit system a credit and debit system. 95% of the money supply is created by banks when they make loans, and this has been confirmed by the Bank of England the Bundesbank, the International Monetary

Jason Hartman 12:30
Fund, listen to my listeners will not deny that because they have an understanding of how this whole games work, smoke and mirrors game works, right? Money is lent into existence. But your act the way you’re talking about that is almost like bats. Okay. And I think the first question is, is that okay, it seems really Hocus Pocus.

Ellen Brown 12:55
Okay, well, that my premise is that’s the system we’ve got and you know, we have to do With that, we’re not gonna

Jason Hartman 13:01
change. You’re just being practical as well. I

Ellen Brown 13:04
actually think it’s not a bad system. What’s wrong with it is that it’s run by private banks, and they are interested parties and they’re corrupt. And their goal is to make as much money as they can for their shareholders. You see that? Do

Jason Hartman 13:16
you include the Federal Reserve as being a private bank, though?

Ellen Brown 13:19
Yes. Okay. But, but they could be public. That’s, and they should be. So that’s what I think if so, anyway, the problem is that banks create the principal, but they don’t create the interest. So that always grows faster than the money supply, which means you’re always in a deflationary situation and with the money supply, and debt grows faster than the money supply for another reason, there’s, at least the money available to repay the debt is not there for another reason, and that’s because people don’t put their money back into the money supply. In other words, if all of our money is created by banks as loans, it’s all going to have to go back to the bank to pay off the loan. loan so it has to be made available to repay the loan. Otherwise, you’re going to have this increasing deficit on the one side of the balance sheet. And the reason it doesn’t there’s two reasons. First of all, we have two economies essentially, we have producer consumer economy, which is where you want to keep the money. And then the financialized economy where you have money making money, it’s parasitic draining money out of the real economy. And because of the Fed put, which is you know, it used to be the Greenspan put now it’s the Fed put where the Fed just isn’t going to let the market go down the stock market go down whenever they do, everybody screams bloody murder, and, and then the Fed jumps back in and reverse, you know, lowers the interest rate yet more and does yet more quantitative easing, etc. So the Fed put means that you really can’t lose money in the financialized economy, or at least you couldn’t right up until recently. So investors and even bankers, or whatever People in general savers put their money into the financialized economy because that’s where the money is. That’s where you make money because the Fed has protected it and made sure that you make more money there than by putting money into factories and, you know, producing things. So therefore, the real economy is always chronically short of money, because there’s a hole in the bucket for one thing leaked out into the financialized economy or a lot of people just save their money. Or they might just be sitting in a bank account not doing anything. I

Jason Hartman 15:32
think I think that’s kind of important what you just said. You said the real economy is always short of money, because there’s a hole in the bucket where those quarters that you talked about, or those coins drain, always into the financial economy. And my listeners have heard me talk about this before. There’s two economies sometimes I say there’s the main street economy in the Wall Street economy, and they’re completely different. There’s the financial economy and the real estate economy in the real economy. People in companies produce things. Imagine that when a concept in the financial economy, they just move crap around, rename it, you know, leverage it. Dude, I don’t know you explain more about the financialized economy I get so annoyed by the whole thing. Sound I just sound angry. But you know what, go ahead and go into that a little bit. What is the financialized economy, the financialization of so many parts of the economy? I mean, it is truly shocking. How many things Elon has become a derivative. It’s absolutely amazing. Talk on that for a moment. Yeah, it’s worth elaborating on

Ellen Brown 16:39
Well, it’s of course the stock market and all these well derivative market which is what, up to a quadrillion or something like that. But and then people would say, well, so the money goes into the financialized economy, but then they’ll spend it back into the real economy, but they don’t that’s the thing. That big money is not going into consumer goods. They’ve got all the consumer They need or what? where it goes they use their big money for big things like buying off politicians, you know buying oil companies or you know just buying up really big things. That’s what they want with their money. Not Okay, Okay,

Jason Hartman 17:15
wait, wait wait a second. Let me play devil’s advocate with you on that one right. Is that really true though? Because the idea that Money Never Sleeps when the rich pay off a politician which is absolutely disgusting, or, you know, they buy a yacht or they buy an oil company or whatever they do. The money doesn’t go away. it trickles down to us a cliche into I mean, it doesn’t go away. It

Ellen Brown 17:44
does. It doesn’t trickle down. Now, if you look at a chart, it just keeps trickling up. They just keep sucking more and more out and it, it goes into, well, it’s probably sitting in offshore tax havens or it’s gone offshore and other ways.

Jason Hartman 18:00
Well, you know, in that way it does sort of evaporate, right go when it goes off shore. That’s Yeah,

Ellen Brown 18:05
and a lot of I think there are trillions of dollars that are being held by corporations just in cash. I mean, I have a course I have an IRA and, and half that money is just sitting there and cash in my stock broker account. I mean, they’re not even like if it was in a bank, the bank might be using it for loans but not my stockbroker. So there’s a lot of money that’s just not in the market. You know, it’s just held off the market. I’m just saying that people rich people who have many, many times as much money as poor people aren’t going to go out there and spend many many times as much money on buying trinkets and groceries and gas and all those things they but they’re gonna buy the same

Jason Hartman 18:48
knows that only buying trinkets and gasoline and paying rent is real, really beneficial to the economy. I mean,

Ellen Brown 18:57
well, they will go buy houses. I agree. And that will drive up the price of house

Jason Hartman 19:02
and it will employ construction people and it will buy.

Ellen Brown 19:06
assuming there’s room to build. I’m thinking of things that are already there. You know, I said,

Jason Hartman 19:10
Yeah. Okay. So they take we’ll take an expensive place take, you know, they go buy houses in Manhattan or Beverly Hills, right, which is where they buy them. Okay, so a real estate broker, a mortgage company gets paid in, decorator gets paid, you know, money does. It doesn’t. The seller gets paid and the seller uses those proceeds somewhere, it doesn’t evaporate. I think that’s a fair statement.

Ellen Brown 19:34
True. But you still have all this money being sucked out, that doesn’t go back into the local economy debt. All those things could happen at the same rate they were happening before. And it’s not going to increase the money and you know, the overall money and wage earners pockets. They’re the ones that they weren’t to pay their wage earners as little as possible. And that’s the problem. That’s why, particularly in times like this 80% The population lives paycheck to paycheck. So what are those people going to do on the second month when they don’t get their 1200? dollar check? I mean, I haven’t seen my 1200 dollar check. I don’t know. I guess some people have. Anyway, you know, people are desperate out there right now. So you gotta do some.

Jason Hartman 20:18
So we covered a little bit about the financialized economy. Do you want to say anything more on that before we go back? And then let’s get back to your article, because I think this article is really interesting. And let’s talk more about UBI. But anything else about the financialization of the economy?

Ellen Brown 20:33
No, I think that’s okay. I had to say,

Jason Hartman 20:35
Okay, let’s go back to the article.

Ellen Brown 20:37
Okay, so with the UBI.

Ellen Brown 20:41
Because there’s this growing gap. What happens routinely, and this has happened for thousands of years is that debt grows and grows and grows until it gets so high that people can’t borrow anymore and what they do instead is they pay down their debts, but they’re not taking out new debts. That shrinks, the money supply shrinks and shrinks, and then you go into deflation, which turns into depression. And that’s that syndrome that the, that everybody’s afraid of, or that you know that the big the Fed and all the regulators are afraid of. So there are two options you can what they used to do in antiquity was just forgive the debt periodically because Jubilee, right, yeah, because the lender was the king or the, or the temple. But you can’t do that anymore because the lender is private, you know, they’re private lenders. And even if they wanted to forgive the debts that would that would put them into bankruptcy because they’re supposed to balance your books. So the other and I

Jason Hartman 21:44
hate the idea of any sort of debt Jubilee and why I hate it is it would be totally unfair and unequal distribution of benefits. For example, you know, there’s a lot of talk now about forgiving student loans. Look, I am student loans are a huge ripoff. Believe me, you’ve got my sympathy. But the problem is, I don’t have a student loan. So if they forgive the student loans and all the taxpayers pay for it, why do I have to contribute to that? I didn’t get any benefit.

Ellen Brown 22:11
Right? And then the people that just finished paying off their student loans, they’re gonna be upset. Yeah, so I totally agree. That’s the problem with all these different programs that give some here, some there. So that but you do have to fill that bucket that just got drained and there’s, and so that, to me, the fairest way to do it is to just figure out call it a national dividend. It’s the extra money that we need to put into the economy to balance the books to, you know, to pay off all the old debt. So so if you get a UBI, and you’re in debt, you could even make it mandatory that the money goes first to pay off your debts, like your credit card debt. Your bank knows what credit card debt you have, and it would just go automatically to pay that debt off. Well, when it goes to pay off debt, it disappears. That’s the catch. The thing that people aren’t recognizing is that money evaporates when it pays off debt. So if you give the people randomly, you know, everybody gets the same, but if the people use it to pay down their debt, that money, that portion of the money is going to disappear. And I saw somebody or somebody wrote a whole book on this. And he said he figured that at least 50% of a UBI would go to pay, pay back debt. And, and then he Well, he actually figured more like two thirds of it would either that or it would be saved or pulled off there, Mike, I don’t make

Jason Hartman 23:33
sure Elena, we catch your position on that. Are you saying that that is though it’s good or bad?

Ellen Brown 23:39
I’m saying it’s good. I mean, it’s given the system we have, we’ve got to do something about that debt, if we give people

Jason Hartman 23:46
in the debt you’re talking about is just personal debts, right?

Ellen Brown 23:48
everybody’s business, whatever, you know, any kind of debt. The money will, if the money goes to, to the extent the money goes to pay off debt, it will disappear because that’s the way The system works, it’ll go, it’ll just go into the bank account, like you’ll go to your credit card thing and your credit card balance will be gone, but you won’t have like extra money to spend. And there’s actually at least room for 10% growth in the money. Well, we used to be that we said we were at full employment, but everybody knew we weren’t really. But now we’re clearly not at full employment. So there’s clearly a lot of room to grow. So any extra that actually did go into buying goods and services would go to stimulate production of goods and services, which would be good for the economy.

Jason Hartman 24:35
Okay, so how does this relate to if it relates to what we’re starting to hear a lot about, and millennials would like it. And that’s modern monetary theory, otherwise known as mmt.

Ellen Brown 24:52
Well, mmt actually says you can go that the government can go into debt a lot more deeply. than it’s doing right now or thinks it can, because the effect of it is to just borrow from the Federal Reserve and to create new money. I don’t actually agree with that, because I don’t think that is the effect would that Treasury is not allowed to go directly to the Federal Reserve and borrow? Not right now. I mean, it could be that you couldn’t change the law and say that, you know, the government could just print extra money. And I would agree with that, that’s good that we need extra money out there in the system. But to say that it doesn’t matter if the government goes further and further into debt, and particularly the way it’s set up now, where were the debt has to be sold on the open market first. And that means it goes to private bondholders and they’re going to want their interest and you’re going to have the interest burden. I mean, I’ve seen projections that in like 10 years, we’ll be paying a trillion dollars, just an interest rate. Now, I think it’s 554,000,000,560 5 billion, something like that annually. interest and there’s no need to be paying interest, we could be borrowing it directly from that central bank at interest free because they rebate the interest to, to the Treasury when, after detecting

Jason Hartman 26:12
costs. So, Ellen, it sounds too good to be true. I mean, we can just give people money. Have the Federal Reserve pay for it? Don’t we have to? Doesn’t someone pay for that a foreign country buying a treasury bill or something? Can we just create money out of thin air? Or do we create inflation? Is that how we all pay for it?

Ellen Brown 26:35
And what you’re creating his credit, all of her money is credit and we need more credit out there. This is the way the Chinese do it, and they prove it in the model. The Chinese increase their money supply by 1800 percent, like 18 times in 20 years and they did not run into hyperinflation. But what they do is, this state owns 80% of banking assets. So what they do is they go right to their big banks, borrow from the bank, the bank creates the money on its books, they use that money to build a high speed rail, let’s say, and then the proceeds from the high speed rail, pay off the loan. That’s the way our system works. You got to get the credit out there first pay all the workers materials, make some money, paid the thing off, the you know, the money comes back. And there isn’t enough money out there right now. So that’s what helicopter money does. It’s gets more money out there to pay off the loans and to build more stuff. So it’s not going for nothing. It’s going for real goods and services. It’s the counterparty to the goods and services that we will be making in the future. That’s what all loans are. It’s a monetization of your own future promise to repay

Jason Hartman 27:48
very interesting. I know you’ve got to run to another interview, give out your website.

Ellen Brown 27:53
Ellen brown calm is my own website. And then there’s public banking Institute dot o RG My books are available on Amazon, among other places.

Jason Hartman 28:04
Ellen, thanks so much for joining us.

Ellen Brown 28:06
Thank you. Always good to talk to you, Jason.

Jason Hartman 28:13
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